Milton Friedman: A concise guide to the ideas and influence of the free-market economist

By Eamonn Butler

"One of the most important economic thinkers of all time..."
- Paul Krugman
Milton Friedman changed the world. From free markets in China to the flat taxes of Eastern Europe, from the debate on drugs to interest rate policy, Friedman's skill for vivid argument and ideas led to robust and often successful challenges to a dizzying array of status quos.
Relying on big-picture economic analysis and an insistent faith in human freedom, he took on the economic and political orthodoxies of his day - and if he didn't always win, he never failed to change the terms of the debate.
Rarely an uncontroversial figure, with his disciples and detractors to this day, this is neither a credulous nor a critical look at the Nobel laureate. A brand new guide, it simply sets out to explain his economic and public policy thinking in a straightforward and accessible way for the general reader and student.
Find out:
- how Friedman undermined Keynesianism and the prevailing wisdom of large-scale economic intervention
- how he demonstrated the true cause of the Great Depression and identified its real culprits (they weren't the ones jumping out of the windows)
- what Friedman believed really destroys the value of the money in your pocket and how it can be stopped
- his arguments for why regulations and minimum- wage laws actually achieve lower standards and greater poverty
- his reasons for why big corporations prefer markets that aren't free, and how high taxation harms the wealthy less than anyone else.
"There's no such thing as a free lunch."
- Milton Friedman
With more, too, on democracy, equality, global trade, education, public services and financial crises, this is a concise but comprehensive guide to the influence of a key 20th century thinker.
It is a must-read for anyone who wants to know more about the economist whose work changed everything.

• Language: English
• Publisher: Harriman House
• Release date: Mar 25, 2011
• ISBN: 9780857191250

Eamonn Butler

Eamonn Butler is Director of the Adam Smith Institute, one of the world’s leading policy think tanks. He holds degrees in economics and psychology, a PhD in philosophy and an honorary DLitt. In the 1970s he worked in Washington for the US House of Representatives, and taught philosophy at Hillsdale College, Michigan, before returning to the UK to co-found the Adam Smith Institute. He has won the Freedom Medal of Freedoms Foundation at Valley Forge, the UK National Free Enterprise Award and the Hayek Institute Lifetime Achievement Award; his film Secrets of the Magna Carta won an award at the Anthem Film Festival; and his book Foundations of a Free Society won the Fisher Prize. Eamonn’s other books include introductions to the pioneering economists Adam Smith, Milton Friedman, F. A. Hayek and Ludwig von Mises. He has also published primers on classical liberalism, public choice, capitalism, democracy, trade, economic inequality, the Austrian School of Economics and great liberal thinkers, as well as The Condensed Wealth of Nations and The Best Book on the Market. He is co-author of Forty Centuries of Wage and Price Controls, and of a series of books on IQ. He is a frequent contributor to print, broadcast and online media.

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First published in Great Britain in 2011

Copyright © Harriman House Ltd

The right of Eamonn Butler to be identified as the Author has been asserted in accordance with the Copyright, Design and Patents Act 1988.

ISBN: 978-0-85719-125-0

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Published in association with the Institute of Economic Affairs. The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

Introduction

Milton Friedman was a very great man indeed – a man of intellectual courage who was one of the most important economic thinkers of all time, and possibly the most brilliant communicator of economic ideas to the general public that ever lived.

– Nobel economist Paul Krugman, New York Review of Books

What this book is about

This book guides the reader through the startlingly original ideas of Milton Friedman (1912–2006) – a Nobel laureate in economics, but best known to many for his TV series and book Free to Choose (1980), a searing critique of big government and robust defence of individual freedom.

Friedman’s thinking had a powerful influence on world leaders such as Margaret Thatcher in Britain and Ronald Reagan in America. In the 1970s, it underpinned the replacement of fixed exchange rates by open currency markets and free trade. In the 1980s, it contributed to the demise of Soviet communism in the East and to privatisation in the West. In the 1990s, it provided the blueprint for reform as countries in Eastern Europe and Latin America emerged from years of totalitarianism. By the 2000s, it had helped cut world inflation to a tenth of what it had been a decade before.

Friedman was the best-known economist of his generation. He undid the grip that Keynesianism – based on the thinking of John Maynard Keynes, with its faith in large-scale government spending and intervention – held over postwar politicians and economists. The radical alternative he created – Monetarism – called instead for sound money, balanced budgets and deregulation. And he showed how the Great Depression of the 1930s was caused, not by some failure of capitalism, but by a profound failure of government – drawing lessons that are just as relevant to how we should handle financial crises today.

But Friedman was much more than an economist. At a time when the world was bitterly divided between capitalism and communism, he threw himself into every major debate on how society should be organised. He became the world’s leading advocate of personal and economic freedom; and his arguments helped change the politics of a generation.

What this book covers

This book does not go into the academic detail of Friedman’s economic ideas – though it does explain many of them in a straightforward and accessible way. It focuses more on his innovative public policy thinking – and how his prescriptions led to real and powerful policy changes that still determine, in part, how millions of people across the world live and work today.

Accordingly, the book covers Friedman’s thinking on such varied subjects as how best to organise education, healthcare, mail delivery, defence and other public services; how governments create monopolies, and how to end them; radical tax simplification; how free markets coordinate the work of people across the world; why we should deregulate commerce and trade; why government grows, and why so much that it does is counterproductive; why drugs policy has failed, and what we should do instead; why freedom cannot be traded for equality; the rights of minorities; and indeed the whole relationship between government and the citizen.

The book seeks to outline and explain Friedman’s thoughts and prescriptions on all these subjects. It puts them in the context of the time, showing just how revolutionary they appeared to his colleagues and contemporaries. And it places them in the context of the policy debate today, showing how many of them, once shocking, have become commonplace parts of our lives.

Who this book is for

This book is consciously written for the intelligent layperson who is interested in the debate on how our social and economic lives should be organised.

It is perfect for anyone who wants to understand, or learn more about, the free-market, liberal (in the European, not the American, sense) side of the argument. After all, Milton Friedman, the book’s subject, himself laid out most of that case at one point or another in his various books and articles. This book organises all that material into a short, structured guide.

The book aims to explain Friedman’s ideas straightforwardly, without distortion and in plain language. Hence there are no academic-style footnotes or bibliography – just an essential reading list of Friedman’s most significant books and articles.

It should also interest school and university students of economics, politics and social philosophy, giving them a concise insight into a set of radical ideas and opinions that are frequently dismissed or ignored in orthodox economics and social science teaching. There is plenty in here to challenge those teachers!

There is also a political interest to the book, in that Friedman was one of the greatest intellectual inspirations behind the rise of the New Right in the 1980s and 1990s. His ideas had huge influence on policy makers such as Reagan, Thatcher, the US Federal Reserve Chairman Alan Greenspan, the Estonian Prime Minister Mart Laar, the Czech Prime Minister and President Václav Klaus, and many others. This book explains how Friedman’s ideas came to shape the views of such leaders all round the world, from America to China.

Friedman and the author…

I knew Milton Friedman. As a student I found his Capitalism and Freedom (1962) breathtaking in its originality – an exhilarating libertarian alternative to the prevailing mood. So I was thrilled to meet him at the 1974 conference of the Mont Pelerin Society – the international association of free-market, liberal thinkers which he co-founded – and again a year later at the next conference in my own university of St Andrews, and at many other events over the next 30 years.

In 1978 Friedman spoke at one of the first meetings of the Adam Smith Institute, the free-market think-tank of which I am director. And in 1985 I wrote a book outlining his economic theories in simple language – a book about which he was very kind, and characteristically encouraging.

…and this book

People who met Friedman found him impossible to dislike. He was indeed a brilliant, and highly personable, communicator, always smiling, particularly when enjoying a good argument – which was most of the time, since his novel and challenging ideas were so frequently in the minority.

But it is not my purpose here to take Friedman’s side of those arguments against his many critics, or elaborate his case. I wrote this book on the eve of his centenary year, a good moment to take stock of his life’s work and lasting influence. Friedman’s written work amounted to scores of books, both technical and non-technical, and hundreds of articles, not to mention his TV series and countless media appearances and interviews. My ambition is only to distil from all this the essence of Friedman’s ideas and present them systematically and simply.

In doing so, it is natural that I should give slightly greater space to those ideas that seem most relevant for the issues we face today – Friedman’s views on the origins of boom-bust cycles, for example, and how to prevent them. Yet I have also indicated where time has tested his ideas – as in the practical difficulties that the financial authorities found when they did try to control money and inflation as Friedman prescribed.

As for his libertarian social policies – decriminalising drugs, ending the state licensing of doctors and lawyers, getting the government out of hospitals, schools and universities – Friedman remains, as he once put it, so happily blessed with critics that I see no point in adding myself to them here.

How this book is structured

The book is not a chronological history of Friedman’s life and work. Rather, it is structured round the key themes of his contributions to economics and politics.

After a short account of Friedman’s upbringing – he was the child of poor Hungarian Jewish immigrants to the US – and of his subsequent, glittering career and continuing influence today, the book moves first to outline his contribution in economics. In particular it sets out his dispute with Keynes over the causes of financial crises such as the Great Depression, his view that ‘stimulus’ packages actually make things worse – an argument that is still very relevant today – and his groundbreaking insights into the causes and cures of inflation and unemployment.

The book goes on to explain Friedman’s criticism of government regulations and controls over commerce, trade and international markets; it then outlines his explanation of why he thought most government programmes are either a failure or a fraud, and recounts his recommendations for rolling back the state.

The book then lays out Friedman’s ideas as the leading advocate of free and largely unregulated markets, and his explanation of why he thought free markets allocated resources so much more efficiently – and fairly – than governments.

This leads on to Friedman’s libertarian views on freedom, equality, the limited but important role of government, and his robust but humane faith in the genius of free individuals in a free society.

A Timeline of Milton Friedman’s Life and Work

1912: Milton Friedman born in Brooklyn, New York, to Jewish Hungarian immigrant parents; his father trades goods while his mother sews garments in a New York sweatshop.

1928–32: Reads mathematics at Rutgers University; meets economists Arthur Burns and Homer Jones.

1932–33: At the University of Chicago as a graduate student; influenced by economists Jacob Viner, Frank Knight and Henry Simons; meets his future wife Rose Director; graduates with a master’s degree in economics.

1929: The Wall Street crash heralds a decade of economic turmoil, the Great Depression.

1933–36: Roosevelt’s New Deal attempts to kick-start the US economy.

1933–34: Friedman studies statistics on a fellowship at Columbia University, under prominent economist and statistician Harold Hotelling.

1934–35: Works as research assistant to Henry Schulz at Chicago; meets George Stigler, who would become a lifelong friend and fellow Nobel economist.

1935: Begins work on consumer spending at the National Resources Committee